Overview

The international agreements that attempt to control greenhouse gas (GHG) emissions are hierarchically structured (Wara 2006). The highest-level agreement—the U.N. Framework Convention on Climate Change (UNFCCC, or Convention)—adopts a goal of stabilizing “greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system” (United Nations 1992, 4). All major emitters and most other countries have ratified the UNFCCC. However, the Convention does not contain provisions that compel countries to take action. Rather, it lays out a process for negotiating protocols that might contain such provisions (Wara 2006). The first of these protocols was negotiated in Kyoto in 1997 (Wara 2006).

The Kyoto Protocol (KP) requires Annex B countries to reduce their aggregate GHG emissions by 4.2 percent on average for the period 2008-2012 relative to emissions in the base year, which in most cases is 1990 (Olivier et al. 2011). The target for the KP can be reached by reducing six GHGs—carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride—in any combination (UNFCCC 1998). In addition, the KP allows participating countries to meet their targets through the use of three flexibility mechanisms: (a) purchasing assigned amount units (AAUs)—that is, emissions allowances under the KP—from other countries participating in the KP; (b) contributing to emissions-reducing projects in other Kyoto-participating countries and acquiring emissions reduction units (ERUs) through Joint Implementation (JI); and (c) contributing to emissions-reducing projects in countries not participating in the KP and acquiring certified emissions reductions (CERs) from the Clean Development Mechanism (CDM) (Lecocq and Ambrosi 2007).

This backgrounder focuses on the CDM and JI mechanisms, which provide the flexibility to purchase carbon offsets. Section II provides background on the CDM and JI mechanisms. Section III describes the data available for the CDM and JI. Section IV describes current research on the CDM and JI and Section VI provides tables summarizing this research. Section V concludes and Section VI is a list of references.

On December 19, 2017, the government of China announced that it is commencing development of a nationwide CO2 trading system, that when launched will become the world’s largest carbon trading system, annually covering about 3.5 billion tons of CO2 emissions in China’s electric power sector.